In this Tax Update for June 2016 we look at a selection of Decrees and Official Letters released recently and which are likely to impact businesses operating in Vietnam. As always, please contact us if you would like further information on any of the items discussed in our Tax Updates publications.
DECREE 50 - GUIDING SANCTIONS AND ADMINISTRATIVE PENALTIES FOR INVESTMENT AND PLANNING MATTERS
The Government of Vietnam released Decree 50/2016/ND-CP (“Decree 50”) on 1 June 2016 detailing penalties, sanctions and other enforcement for a wide range of administrative and investment related matters for enterprises operating in Vietnam.
For example, where an entity fails to appropriately update required contents on their Enterprise Registration Certificate (ie, a new business address), then administrative penalties can apply as follows:
|1 to 30 days||VND1 million - VND5 million|
|31 to 90 days||VND5 million - VND10 million|
|Greater than 90 days||VND10 million - VND15 million|
These fines, although not significant for many businesses, also work in parallel with taxation laws; the potential effect being a denial of Corporate Income Tax (“CIT”)deductions, and other penalties may also arise where the business are operating without adequately amending their Enterprise Registration Certificate.
The Decree also covers penalties for not registering additional seals with appropriate authorities (since multiple seals are now permitted for companies), and also additional penalties for authorising (ie, via delegated authority) individuals who do not have the capacity to have authority legally delegated.
The Decree takes effect from 15 July 2016, and replaces Decree 155/2013/ND-CP.
DECREE 49 - AMENDMENTS TO SANCTIONS AND PENALTIES FOR TAX ADMINISTRATION MATTERS
On 25 May 2016, The Government of Vietnam released Decree 49/2016/ND-CP (“Decree 49”) amending and supplementing a number of articles covering sanctions for tax administration, invoicing and revenues in Decree 109/2013/ND-CP.
The positives from these amendments includes that the penalties for sellers losing issued VAT invoices (“Red Invoices”) have been reduced from a maximum VND20 million to VND8 million (unless destroyed by natural disasters, where penalties are waived), and scenarios to decrease penalties to potentially zero where buyers and sellers agree to document missing invoices and detail the extenuating circumstances as appropriate.
Decree 49 takes effect from 1 August 2016.
OFFICIAL LETTER - PERSONAL INCOME TAX WHERE TAX RESIDENCY CHANGES
On 20 March 2016, the General Department of Taxation (“GDT”) issued Official Letter No.1657/TCT-TNCN regarding Personal Income Tax (“PIT”) for individuals that cease being Resident taxpayers and become Non-Resident taxpayers.
Where a foreign individual signs a labour contract and performs work in Vietnam over a number of years, they will be treated as a Tax Resident and are to subject PIT based upon the standard progressive tax rates.
However, in the final year of the foreigners employment, they may be in country for less than 183 during the assessment year and no longer be deemed a Tax Resident of Vietnam. In these situations they will be subject to Non-Resident PIT rates of 20% on their income and will not be required to finalise PIT on their departure.
Where this change in Residency results in an over-payment of PIT, the foreign individual will be entitled to a tax refund for the PIT overpaid, either by personal application for a refund or authorising a third party to undertake the refund on their behalf.
OFFICIAL LETTER - TAX TREATMENT ON EXPENDITURES FOR FOREIGN EMPLOYEE ADVICE
On 30 May 2016, GDT issued Official Letter 2337/TCT-TNCN providing guidance on tax implications where employers pay for their foreign employees personal tax consulting advice or tax finalisation.
According to this Official Letter, the GDT believes that costs related to (foreign) employees’ tax consulting or tax finalisations paid for by the employer are not relevant to the activities of the employer and should be treated as employee benefits. As a result, these expenses will be regarded as not deductible when employers calculate CIT.
Where employers engage tax consultants or finalisations via contracts that name an individual or specific group of employees, these will be treated as taxable benefits for the employees and PIT will apply. Therefore, to decrease PIT exposure for employees, contracts should be prepared as general in nature and not refer to specific employees or groups of employees.
SOCIAL INSURANCE UPDATES
The Ho Chi Minh City Social Insurance Department have advised that all entities located within Ho Chi Minh City are required to register for the Departments e-transaction system, and from 1 July 2016 all transactions with the Department (Social, Health and Unemployment Insurance transactions, collecting Social Insurance Books, and Health Card issuance) will be conducted electronically through the e-transaction system.
For further information contact:
Matthew Lourey, Partner
Phan Thi Thu Thuy, Manager